Tax law in Delaware?

My best guess is that they don't tax your non-Delaware source income.

You should be more concerned with how the state(s) where you operate tax your income. If you're operating from California, they couldn't care less where you incorporated. They're going to want their cut.

Delaware is considered primarily a corporate governance haven, not a tax haven.

I suspect you're chasing a shadow in expecting that where you incorporate is going to save you chunks of tax. In any case, your planned operations sound sufficiently complicated that you really should invest in some good accounting and legal advice. It will save you money in the long run.

Good luck with your better mousetrap.

"Larry" wrote

And that's a valid observation.

You don't say what state you will be operating from. Please be aware that ~~that~~ state's tax laws apply to your business regardless of where you incorporate. As well, you'll still have to register (and pay a fee to the state) as a foreign corporation with your home state.....as well as all other states in which the business does business.

Federal tax laws apply regardless.

Deleware - as do many states - doesn't tax income the company generates in other states. Although as I mentioned above, you'll still owe tax to your home state.

Are these "salespersons" your employees? Or are they "independent sales reps"?

Be aware that the IRS is cracking down on this issue, so don't just call them IC's when they meet the definition of an employee.

In all states in which you have nexus (a physical presence in), you'll possibly owe: corporate income tax, sales tax, property tax, payroll tax, and you'll have to register as a foreign corporation.

Income tax would be due on the share of net income (profit) allocated to that state. Sales tax is on the sales made in that state. Payroll tax is on the wages earned by your employees while they work in that state. Property tax is due on company assets used in that state.

There are always exemptions and exceptions, like conventions and conferences, etc..... so take a good look at each state's laws.

On ~~all~~ sales you make where delivery is on another state in which you don't have nexus (ie: you mail/ship products to another state in which you don't have any other business tie), you don't owe any sales tax to tyour state, or the state in which you send the goods.

Sales made by phone or the internet - made to your home state (or any other state in which you have nexus) - are subject to that state's sales tax (you need to charge, collect, account for, prepare and file reports, and remit the tax).

You mean as in another country?

I have clients who make sales in and to other countries. The profits from those sales are taxed in the US.

What is "double" would be the initial and annual registrations in each state you do business in - as well as in the state of incorporation.

So if you were operating in Iowa and formed this Deleware corporation, both Deleware and Iowa would have annual registrations and fees to pay by the company, as well as all Iowa sales tax, corporate tax, payroll tax, etc and so on. Double filings in some cases. Double the costs to do so.

It probably wouldn't hurt to find a CPA or EA in your area who can advise you on all these issues and fill in many of the gaps you have about your business tax obligations. Do so before the upcoming tax season hits....like this week maybe.

Well, I'm swiss citizen, currently living...well, legally I don't even know where I'm supposed to be living :p I spend my time between Hong- Kong, Taiwan, Mainland China and Singapore. Used to be Taiwan resident but no longer. I still fill my swiss tax form even though I pay nothing because I have no "legal" source of income. See, kinda difficult. Let's say I should have to pay tax in Switzerland.

My plan is somewhat different:

See, I don't want the US company to have to face money-laundry accusations, that's why I really want to pay every due cent to the IRS and only transfer profit.

mmm, think I imagine your question: "why I don't make business with the offshore company"? Have you tried to - really - make business with a paper company from a tax-haven? OK, if you own websites and get money though PayPal or stuff like this, no problem. But if you trade, it gets almost impossible. Your partners accept your money (after all, my business bank account is in a well known UK bank) but very few of them accept to pay you money. They fear it might put them into trouble with their tax agency -- money laundry, as always...

As long as I was selling to end-users it was no problem. I even used to use my personal home address in Taipei as contact information. All my customers thought it was a Taiwanese company even though it's actually based in Anguilla. But wholesale market is fairly different...When I send them business info and they see a PO Box address in a caribbean tax-haven they say "sorry, we can't make business with you".

yes, I figured it out already.

independent sales reps. Now can be sole-proprietorships, Corporations, LLCs, not my problem as long as they have a legal business and we sign contract together. Percentage paid.

NO physical presence. Don't even need my own warehouse, I'll use fullfillment services provided by an independent company if needed - products are supposed to be manufactured and sent to customers by a company based in the USA (not my company, an independent business) and we'll work with a zero-stock/just-in-time policy.

afaik, would have to pay sales tax (if any). Not resident so not income tax. No employee, no property. Even secretarial services will be run by a third-party independent business.

Not even California? Aren't you supposed to bill more when your customers are in Cal.?

Thanks for your answers Paul.

Larry

If the corporation is a C corp and incorporated in Delaware, but one or more employees operate out of California, then what is California's cut? The California employees would have to pay California income tax on their income and dividends, but profts of the company would be outside California's grasp, right? I'm guessing that for an internet company that sells a web service over the internet (like internet games and click advertising revenue), the server storing customer data like username, password, credit card info should be located outside California -- otherwise the company could be construed as operating out of California.

Hard to say precisely. Each state has a different formula, but it generally falls as a prorata share based on a combination of: Wages in state to total wages Sales in state to total sales Property (building and equipment) in state to total property And/or other factors.

Some states allow for actual revenues and expenses for that state if you have the supporting documentation.

So for a Deleware company that had all it's employees in CA, all sales were made from CA (in person, by phone or over the internet), all physical assets were located in CA......then it's a CA based business and they want ther taxes in full. And the company needs to register and pay the exact same fees to CA as they would if it were a CA company.

FYI: You'll also have some obligatory filings and fees to pay to Deleware, so in some cases you pay double.

Hardly.

I doubt the server location itself dictates what state you get taxed in, or not get taxed in for that matter. But now you've jumped into a legal issue.

Clearly if the server is yours - in that you own it - and not just lease server space as is often the case - it may have some impact. But the one(s) that carry the most weight is where you sit your butt down when the work is done, where you have inventory, where you bank, where you receive mail, etc and so on.

essentially meaningless. Businesses, however organized, are taxable where they operate, not where they are organized. The state of incorporation imposes certain reporting requirements and may impose taxes based on capital stock or net worth. A Delaware corporation is subject to the Delaware franchise tax on 100% of its authorized (not necessarily issued) stock. However, income tax is imposed only in income from business carried on in the state.

A corporation, wherever organized, that has all of its employees in California and no physical presence anywhere else would be subject to California franchise (income) tax on 100% of its net income. Owning a server located in a no-income-tax state (e.g. Nevada) could allow such a business to apportion some of its income outside California. Merely leasing space on a server somewhere probably would not create "taxability" in another jurisdiction so as to give the corporation the right to apportion its income.

This is not just a California rule; the same thing is true in EVERY OTHER STATE that imposes a comprehensive corporate income tax or franchise tax measured by income. That's every state except Nevada, Wyoming, South Dakota, and Washington.

Bottom line: you cannot avoid state corporate income/franchise taxation by organizing your corporation in a Delaware or a "tax haven" state such as Nevada.